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U.S. Securities and Exchange Commission

Initial Decision of an SEC Administrative Law Judge

In the Matter of
Dennis E. Ward

INITIAL DECISION RELEASE NO. 226
ADMINISTRATIVE PROCEEDING
FILE NO. 3-10485

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION


In the Matter of

DENNIS E. WARD


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INITIAL DECISION

May 8, 2003

APPEARANCES: Stephen J. Korotash for the Division of Enforcement,
United States Securities and Exchange Commission

P. Michael Armstrong for Respondent

BEFORE: Lillian A. McEwen, Administrative Law Judge

SUMMARY

Respondent Dennis E. Ward (Ward) willfully aided and abetted, and caused a registered broker-dealer's violations of Sections 15(b)(7) and 17(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 15b7-1 and 17a-3 thereunder. This Initial Decision imposes a suspension, cease-and-desist order, disgorgement, and civil monetary penalty against Ward.

PROCEDURAL HISTORY

On May 17, 2001, the United States Securities and Exchange Commission (Commission) issued an Order Instituting Public Administrative and Cease-and-Desist Proceedings (OIP) against Ward pursuant to Sections 15(b), 19(h), and 21C of the Exchange Act. On March 4, 2003, I held a public hearing in Fort Worth, Texas. During the hearing, Ward testified on his own behalf and the Division of Enforcement (Division) called no witnesses. I admitted into evidence two exhibits from Ward and two exhibits from the Division. The Division's Post-Hearing Brief was filed on April 8, 2003, and the Respondent's Post-Hearing Brief was filed on April 15, 2003.1

ISSUES

The OIP alleged that from approximately December 1995 through at least May 1997 (the relevant period), Sunpoint Securities, Inc. (Sunpoint), a registered broker-dealer, willfully violated Section 15(b)(7) of the Exchange Act and Rule 15b7-1, by effecting transactions in, or inducing the purchase or sale of, securities when a representative associated with Sunpoint, who effected or was involved in effecting such transactions, was not registered or approved in accordance with the standards established by the National Association of Securities Dealers (NASD) of which Sunpoint was a member. The OIP also alleged that during the relevant period, Sunpoint violated Section 17(a) of the Exchange Act and Rule 17a-3, by failing to make and keep current such records as the Commission, by rule, prescribes as necessary and appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Exchange Act.

The OIP further alleged that Ward willfully aided and abetted, and caused Sunpoint's violations of Sections 15(b)(7) and 17(a) of the Exchange Act and Rules 15b7-1 and 17a-3, in that he, among other things: (1) signed subscription documents, new account forms, and other documents, holding himself out as the registered representative for transactions, when, in fact, another representative associated with Sunpoint, who was not registered or approved in accordance with the NASD standards, effected or was involved in effecting such transactions; (2) knew or reasonably should have known that the representative, who effected or was involved in effecting such transactions, was not registered or approved in accordance with the NASD standards; and (3) caused Sunpoint to make and keep certain false books and records with respect to the purchase or sale of certain securities.

The Division and Ward stipulated to the facts alleged in the OIP, pursuant to Rule 323 of the Commission's Rules of Practice, 17 C.F.R. § 201.323. (Div. Ex. 1.) If the facts alleged in the OIP constitute the alleged violations, the only remaining issues are whether remedial action is necessary or appropriate pursuant to Sections 15(b) and 19(h) of the Exchange Act; whether Ward should be ordered to pay disgorgement and prejudgment interest pursuant to Section 21C of the Exchange Act; whether civil monetary penalties against Ward are appropriate pursuant to Section 21B of the Exchange Act; and whether Ward should be ordered to cease and desist, pursuant to Section 21C of the Exchange Act, from committing or causing violations of, and any future violations of, Sections 15(b)(7) and 17(a) of the Exchange Act and Rules 15b7-1 and 17a-3.

FINDINGS OF FACT

The findings and conclusions herein are based on the entire record. I applied preponderance of the evidence as the applicable standard of proof. See Steadman v. SEC, 450 U.S. 91, 102 (1981). I considered all proposed post-hearing findings, conclusions, and arguments raised by the parties, and I accept those that are consistent with this Initial Decision. I find the following facts to be true.

Dennis E. Ward and Sunpoint Securities, Inc.

Ward a resident of Fort Worth, Texas, graduated from the University of Texas in 1969 with a bachelor's degree in business administration. (Tr. 10-12.) He is a certified public accountant and holds Series 3, 7, 24, and 63 licenses and a Group 1 insurance license. (Tr. 11; Div. Ex. 1 at 1.) Following college, Ward practiced public accounting until the mid 1980s, when he sold his accounting practice and went into the securities business, selling mutual funds and providing retirement plans for clients and small companies. (Tr. 12.)

On July 18, 1990, Ward became registered as a general securities representative and principal with Woodlands Securities Corporation (Woodlands). From November 1, 1991, through November 17, 1992, while associated with Woodlands, Ward paid commissions for securities transactions to four individuals who were not properly registered with Woodlands or any other member of the NASD. Ward ultimately settled with the NASD and consented to a censure and fine of $9,000. (Tr. 23-25; Div. Ex. 1 at B.)

From June 1995 through November 1998, Ward was a registered representative of Sunpoint in Longview, Texas, and worked in the firm's Fort Worth branch office from June 1995 until November 1997. (Div. Ex. 1 at 1.) Sunpoint had been registered as a broker-dealer with the Commission since 1989 and was a member of the NASD. (Div. Ex. 1 at 1-2.) During Ward's association with Sunpoint, Larry Tyler (Tyler), an associate of Ward's in another venture, sold securities to investors in private placements. (Tr. 26-27, 45-48.) However, Ward knew that Tyler was not properly licensed to sell securities in a private placement and was not registered or approved in accordance with the NASD standards. (Tr. 26-27, 45-48; Div. Ex. 1 at 2.) Ward signed subscription documents, new account forms, order tickets, and other documents falsely representing that he was the registered representative for Tyler's sales of securities. By doing so, Ward caused Sunpoint to make and keep false books and records with respect to the purchase or sale of securities. (Div. Ex. 1 at 2.) Ward received $119,000 in commissions from Tyler's sales of securities. (Tr. 41; Div. Ex. 2.) Sunpoint had brokers licensed in thirty-five states and made $25 million in a private placement of its own securities, which ultimately became worthless when the money was stolen. (Tr. 42-43.) Ward's unlicensed partner, Tyler, had also misrepresented the nature of the stock sold to customers. (Tr. 44-47.)

In November 2002, Ward was terminated from his most recent position as a registered representative associated with a broker-dealer, and is presently working from his rented home as a certified public accountant completing tax returns for corporations, partnerships, and limited liability companies. (Tr. 34, 37.) He intends to continue in the securities industry in the future. (Tr. 34.) Despite being fined by the NASD for the same conduct, Ward repeated his conduct because he "succumbed to the environmental factors" and "the people around [him] at the time." (Tr. 35-36.) At the time of the hearing, Ward had a negative net worth of $38,383. (Resp. Ex. 1 at 2.) However, Ward was able to put aside $5,000 to pay a civil monetary penalty in these proceedings. (Tr. 30; Resp. Ex. 1 at 1.) Ward's take-home monthly income as of March 3, 2003, was $7,200. (Resp. Ex. 2.)

CONTENTIONS OF THE PARTIES

Although the Division and Ward stipulated to the facts alleged in the OIP, the parties disagree on the sanctions to be imposed. The Division requests that the Commission enter a cease-and-desist order, order disgorgement in the amount of $119,000, and order a $5,000 first-tier civil monetary penalty. The Division also requests that Ward be "barred for one year from association with a broker or dealer." (Div. Post-Hearing Brief at 14.)

Ward agrees with the Division that a cease-and-desist order and a $5,000 civil monetary penalty would be appropriate. He also agrees with the Division that he should be barred from association with a broker or dealer, but that "the time period for such bar be for a period less than the one year requested by the Division." In the alternative, Ward contends that the Commission "suspend his principal's license" for two years. Finally, Ward argues that he does not have adequate assets, income, or means to pay any disgorgement. (Resp. Post-Hearing Brief at 4-5.)

CONCLUSIONS OF LAW

The Division alleged in the OIP that Ward willfully aided and abetted, and caused Sunpoint's violations of Sections 15(b)(7) and 17(a) of the Exchange Act and Rules 15b7-1 and 17a-3. Section 15(b)(7) of the Exchange Act prohibits a registered broker or dealer from effecting transactions in, or inducing the purchase or sale of any security, unless the broker or dealer meets such standards of operational capability and the broker or dealer and all natural persons associated with the broker or dealer meet such standards of training, experience, competence, and such other qualifications as the Commission finds necessary or appropriate in the public interest or for the protection of investors.

Pursuant to Section 15(b)(7) of the Exchange Act, the Commission promulgated Rule 15b7-1, which provides that any natural person associated with a registered broker or dealer who effects, or is involved in effecting, securities transactions must be registered or approved in accordance with the standards established by the rules of any national securities exchange or national securities association of which such broker or dealer is a member.

Section 17(a) of the Exchange Act requires any broker or dealer and member of a national securities exchange to make and keep for prescribed periods such records, furnish such copies thereof, and make and disseminate such reports as the Commission, by rule, prescribes as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Exchange Act. Pursuant to Section 17(a) of the Exchange Act, the Commission has promulgated Rule 17a-3, which specifies the records to be made and kept by brokers, dealers, and members of national securities exchanges. The record-keeping requirements of Section 17(a) of the Exchange Act and the regulations thereunder require that the information provided be truthful. See Sinclair v. SEC, 444 F.2d 399, 401 (2d Cir. 1971); see also Stead v. SEC, 444 F.2d 713, 716 (10th Cir. 1971); U.S. v. Sloan, 389 F. Supp. 526, 528 (S.D.N.Y. 1975).

Elements of Aiding and Abetting

For aiding and abetting liability under the federal securities laws, three elements must be established: (1) an independent securities law violation committed by another party; (2) knowledge by the aider and abettor that his or her role was part of an overall activity that was improper; and (3) that the aider and abettor knowingly and substantially assisted the conduct that constitutes the violation. See Woods v. Barnett Bank, 765 F.2d 1004, 1009 (11th Cir. 1985); see also Investors Research Corp. v. SEC, 628 F.2d 168, 178 (D.C. Cir. 1980); IIT v. Cornfeld, 619 F.2d 909, 922 (2d Cir. 1980); Woodward v. Metro Bank, 522 F.2d 84, 94-97 (5th Cir. 1975); Russo Sec. Inc., 53 S.E.C. 271, 278 & n.16 (1997). Notwithstanding the level of proof required to establish a primary violation, the Commission has determined that a respondent charged as an aider and abettor must have acted with scienter. See Kingsley, Jennison, McNulty & Morse Inc., 51 S.E.C. 904, 911 (1993).

Primary Violations by Sunpoint

During the relevant period, Sunpoint effected securities transactions based on Ward's false representations that he was the registered representative for the transactions. However, Tyler was the representative making the sales of securities even though he was not registered or approved in accordance with the NASD standards. Based on Ward's false representations that he was the registered representative for the transactions, Sunpoint maintained falsified account forms, subscription agreements, and other documents in violation of Sections 15(b)(7) and 17(a) of the Exchange Act and Rules 15b7-1 and 17a-3. Therefore, I conclude that Sunpoint willfully violated Sections 15(b)(7) and 17(a) of the Exchange Act and Rules 15b7-1 and 17a-3.

Knowledge

Ward knew that Tyler was not registered or approved in accordance with the NASD standards, but executed the securities transactions nonetheless. Ward also knew that his role was part of Sunpoint's overall activity that was improper. I conclude that Ward acted with the requisite knowledge in aiding and abetting Sunpoint's violations of Sections 15(b)(7) and 17(a) of the Exchange Act and Rules 15b7-1 and 17a-3.

Substantial Assistance

Ward signed subscription documents, new account forms, order tickets, and other documents falsely representing that he was the registered representative for the transactions. By doing so, Ward knowingly caused Sunpoint to make and keep false books and records pertaining to the transactions. I conclude that Ward's conduct substantially assisted Sunpoint's violations of Sections 15(b)(7) and 17(a) of the Exchange Act and Rules 15b7-1 and 17a-3. I also conclude that Ward willfully aided and abetted, and caused Sunpoint's violations of Sections 15(b)(7) and 17(a) of the Exchange Act and Rules 15b7-1 and 17a-3.

SANCTIONS

I have concluded that Ward committed the illegal acts described in the OIP. The remaining issue is the sanctions that are appropriate in the public interest. The following factors are relevant for determining the public interest:

[T]he egregiousness of the defendant's actions; the isolated or recurrent nature of the infraction; the degree of scienter involved; the sincerity of the defendant's assurances against future violations; the defendant's recognition of the wrongful nature of his conduct; and the likelihood that the defendant's occupation will present opportunities for future violations.

Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981). The severity of a sanction depends on the facts of each case and the value of the sanction in preventing a recurrence. See Berko v. SEC, 316 F.2d 137, 141 (2d Cir. 1963); see also Richard C. Spangler, Inc., 46 S.E.C. 238, 254 n.67 (1976); Leo Glassman, 46 S.E.C. 209, 211-12 (1975). Willfulness does not require intent to violate, but merely intent to do the act which constitutes a violation. See Arthur Lipper Corp. v. SEC, 547 F.2d 171, 180 (2d Cir. 1976).

Suspension

Sections 15(b)(6) and 19(h)(3) of the Exchange Act authorize the imposition of sanctions on any person associated with a broker-dealer, member of a national securities exchange, or registered securities association, if it is in the public interest and the person has willfully violated any provision of the federal securities laws. Ward's actions were egregious. He has repeated the same conduct, which he previously settled with the NASD for committing. He repeatedly executed sales of securities for a representative who was not properly licensed. Ward admitted that he knew that Tyler was not licensed to sell securities. Thus, his actions were done knowingly and willfully. Finally, Ward intends to continue to be employed as a registered representative associated with a broker-dealer. Thus, there is a strong likelihood that Ward will violate the federal securities laws in the future. It is therefore in the public interest that Ward be suspended for one year from associating with any broker or dealer, member of a national securities exchange, or registered securities association.

Cease and Desist

Section 21C of the Exchange Act provides that the Commission can enter an order against any person, who is violating, has violated, or is about to violate any provision of the Exchange Act, or any rule or regulation thereunder, to cease and desist from committing or causing such violation and any future violation of the same provision, rule, or regulation. In order to issue a cease-and-desist order, there must be "some likelihood of future violations" and "[a]bsent evidence to the contrary, a finding of violation raises a sufficient risk of future violation." KPMG Peat Marwick, LLP, 74 SEC Docket 384, 429-30 (2001). Ward willfully aided and abetted, and caused Sunpoint's violations of Sections 15(b)(7) and 17(a) of the Exchange Act and Rules 15b7-1 and 17a-3. Based on Ward's repeated disregard of the securities laws, combined with his intent to remain in the securities industry, there exists a strong likelihood that he will violate the provisions of the Exchange Act in the future. Therefore, a cease-and-desist order is appropriate against Ward.

Disgorgement

Section 21C(e) of the Exchange Act provides that the Commission may enter an order requiring accounting and disgorgement, including reasonable interest, against any person who is violating, has violated, or is about to violate any provision of the Exchange Act, or any rule or regulation thereunder. The purpose of disgorgement is to prevent the wrongdoer from profiting from the illicit conduct. See Robert A. Magnan, 59 SEC Docket 2276, 2313 (1995). When calculating disgorgement, separating legal from illegal profits exactly may, at times, be a near-impossible task; therefore, disgorgement need only be a reasonable approximation of profits causally connected to a violation. See Joseph J. Barbato, 63 SEC Docket 626, 649 (1996). The evidence presented at the hearing establishes that Ward derived $119,000 in commissions from his illegal conduct.

Pursuant to Rule 630 of the Commission's Rules of Practice, 17 C.F.R. § 201.630, a respondent may present evidence of an inability to pay disgorgement, interest, or a penalty and the hearing officer may, in his or her discretion, consider evidence concerning ability to pay in determining whether disgorgement, interest, or a penalty is in the public interest. See Terry T. Steen, 53 S.E.C. 618, 626-628 (1998); see also First Sec. Transfer Sys., Inc., 52 S.E.C. 392, 395-397 (1995). Ward presented financial information regarding his inability to pay. While Ward has a negative net worth of $38,383, the record establishes that he has the ability to earn a substantial amount of money in the future. As is evident, Ward's monthly income as of March 3, 2003, was $7,200. Moreover, he saved $5,000 to pay a civil monetary penalty and is currently working as a certified public accountant completing tax returns for corporations, partnerships, and limited liability companies. I conclude that Ward has the financial means to pay disgorgement and I order Ward to disgorge $119,000.

Civil Monetary Penalty

Section 21B(a)(2) of the Exchange Act authorizes the Commission to impose a civil monetary penalty against any person who willfully aids and abets a violation of the Exchange Act, or the rules or regulations thereunder. Section 21B(b)(1) of the Exchange Act provides that the maximum amount for a first-tier civil monetary penalty shall be $5,000 for each act or omission for a natural person. For violations occurring after December 9, 1996, and before February 2, 2001, the maximum first-tier civil monetary penalty against any natural person is $5,500. For violations occurring after February 2, 2001, the maximum first-tier civil monetary penalty against a natural person is $6,500. See 17 C.F.R. §§ 201.1001, .1002. In this case, Ward's actions took place both before and after December 9, 1996. However, the Division has requested only a $5,000 civil monetary penalty against Ward, and Ward has agreed to pay that amount.

The assessment of a civil monetary penalty pursuant to Section 21B of the Exchange Act depends on the finding that such assessment is in the public interest. In determining the public interest, the Commission may consider: (1) whether the act or omission for which such penalty is assessed involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; (2) the harm to other persons resulting either directly or indirectly from such act or omission; (3) the extent to which any person was unjustly enriched, taking into account any restitution made to persons injured by such behavior; (4) whether such person previously has been found by the Commission, another appropriate regulatory agency, or a self-regulatory organization to have violated the federal securities laws, state securities laws, or the rules of a self-regulatory organization, has been enjoined by a court of competent jurisdiction from violations of such laws or rules, or has been convicted by a court of competent jurisdiction of violations of such laws or of any felony or misdemeanor described in section 15(b)(4)(B); (5) the need to deter such person and other persons from committing such acts or omissions; and (6) such other matters as justice may require. See Section 21B(c) of the Exchange Act.

Ward's acted knowingly and willfully. He received $119,000 from his misconduct. Ward's actions helped facilitate the fraud perpetrated by Tyler on investors who purchased securities from Tyler believing he was properly licensed. In addition, there is a need to deter Ward as well as other persons from committing similar acts in the future. Ward also previously settled with the NASD for substantially similar conduct without admitting or denying the allegations. I conclude that a first-tier civil monetary penalty in the amount of $5,000 is appropriate against Ward.

RECORD CERTIFICATION

Pursuant to Rule 351(b) of the Commission's Rules of Practice, 17 C.F.R. § 201.351(b), I certify that the record included the items set forth in the record index issued by the Secretary of the Commission on April 11, 2003.

ORDER

Based upon the findings and conclusions set forth above:

IT IS ORDERED that, pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934, Dennis E. Ward is hereby SUSPENDED for one year from associating with any broker or dealer;

IT IS FURTHER ORDERED that, pursuant to Section 19(h)(3) of the Securities Exchange Act of 1934, Dennis E. Ward is hereby SUSPENDED for one year from associating with any member of a national securities exchange or registered securities association;

IT IS FURTHER ORDERED that, pursuant to Section 21B of the Securities Exchange Act of 1934, Dennis E. Ward is hereby ordered to CEASE and DESIST from committing or causing violations, and any future violations, of Sections 15(b)(7) and 17(a) of the Securities Exchange Act of 1934 and Rules 15b7-1 and 17a-3 thereunder;

IT IS FURTHER ORDERED that, pursuant to Section 21B of the Securities Exchange Act of 1934, Dennis E. Ward pay a CIVIL MONETARY PENALTY of five thousand dollars ($5,000); and

IT IS FURTHER ORDERED that, pursuant to Section 21C of the Securities Exchange Act of 1934, Dennis E. Ward DISGORGE one hundred nineteen thousand dollars ($119,000), plus prejudgment interest at the rate established under Section 6621(a)(2) of the Internal Revenue Code, 26 U.S.C. § 6621(a)(2), compounded quarterly, pursuant to 17 C.F.R. § 201.600. Prejudgment interest is due from June 1, 1997, through the last day of the month preceding which payment is made.

Payment of the disgorgement and penalty shall be made by certified check, U.S. postal money order, bank cashier's check, or bank money order payable to the Securities and Exchange Commission on the first day following the day this Initial Decision becomes final. The check and a cover letter identifying Respondent and Administrative Proceeding No. 3-10485, should be delivered by hand or courier to the Comptroller, U.S. Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop-3, Alexandria, Virginia 22312. A copy of the cover letter should be sent to Stephen J. Korotash, Division of Enforcement, Fort Worth District Office, U.S. Securities and Exchange Commission, Burnett Plaza, Suite 1900, 801 Cherry Street, Unit Number 18, Fort Worth, Texas 76102.

This Initial Decision shall become effective in accordance with and subject to the provisions of 17 C.F.R. § 201.360. Pursuant to that rule, a petition for review of this Initial Decision may be filed within twenty-one (21) days after service of the decision. It shall become the final decision of the Commission as to each party who has not filed a petition for review, pursuant to 17 C.F.R. § 201.360(d)(1), within twenty-one (21) days after service of the Initial Decision, unless the Commission, pursuant to 17 C.F.R. § 201.360(b)(1), determines on its own initiative to review this Initial Decision as to any party. If a party timely files a petition for review, or the Commission acts to review as to a party, the Initial Decision shall not become final as to that party.

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Lillian A. McEwen
Administrative Law Judge

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1 "(Tr. __.)" refers to the transcript of the hearing. I will refer to the Division's exhibits as "(Div. Ex. __.)," and Ward's exhibits as "(Resp. Ex. __.)." I will also refer to the Division's and Ward's Post-Hearing Briefs as "(Div. Post-Hearing Brief at __.)," and "(Resp. Post-Hearing Brief at __.)," respectively.

http://www.sec.gov/litigation/aljdec/id226lam.htm

Modified: 05/08/2003